After years of heavy losses three straight quarters of profitability have been enough to see Tesla’s value surge so spectacularly the Californian EV specialist is now the most valuable automaker in the world. A 3.7% gain for the Tesla share price yesterday took the company’s overall market capitalisation to $207.7 billion. That sees it surpass the value of Japan’s Toyota by around $6.5 billion.
The Tesla share price has had a remarkable 2020 to date, quickly recovering from March’s mass-market sell-off when the coronavirus pandemic hit to scale new heights over recent weeks. Despite a fraction of their individual turnovers, or profits, Tesla is now worth over a staggering 3 times the combined value of its closest U.S. rivals General Motors and Ford.
Tesla CEO Elon Musk, also known as a co-founder of the company, actually got involved with Tesla a year after it was founded in 2003 by U.S. engineers Martin Eberhard and Marc Tarpenning. In 2004 Musk invested $6.5 million to lead a $7.5 million fundraising round. It’s an investment that has certainly paid off.
The Tesla share price has gained more than 160% over 2020 alone. Until 9 months ago Tesla had only ever recorded a single profitable quarter. It has now strung together three in a row, stretching from quarter three of 2019.
However, Tesla’s stunning valuation is still very much based on the company’s perceived potential, rather than tangible fundamentals. On revenues and profits, Tesla would still be considered a relatively small, niche automaker.
Even before the spectacular gains Tesla’s share price has seen this year, many city analysts seriously questioned the valuation that markets had assigned to the company. It was the most shorted company in history for a long time as sceptical investors bet on a share price crash. Mr Musk even threatened to take the company private in 2019, complaining about the negative impact of short trades targeting the company.
But the wider market remains convinced that Tesla is in pole position to dominate a future electric vehicles market as diesel and petrol engines are phased out over the next 10-20 years. Tesla has also invested heavily in driverless vehicles technology. It has a major advantage from the fact that it now has hundreds of thousands of vehicles on the roads, all sending back data gathered when drivers switch to semi-autonomous driving modes already available.
If the retail market as we know it vanishes over the coming decades and consumers no longer buy their own vehicles but use fleets of driverless taxis operating on-demand pick up and drop off services, Tesla also looks far better positioned than most traditional car manufacturers.
But despite the future promise for Tesla, its valuation in the context of actual revenues and profits is still quite amazing. But it remains to be seen if shorters who will have lost millions on their bets against the company have the stomach to return to the fray and put their money up against a Tesla share price slump again. It hasn’t worked out well so far.
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